Tax Type
Retail Sales and Use Tax
Description
Statute of limitations; Waiver of limitation
Topic
Collection of Delinquent Tax
Date Issued
07-10-1996
July 10, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This is in reply to your letter in which you seek correction of sales and use tax assessed to ******(the "Taxpayer"), for the period April 1990 through March 1993. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is an international airline that services the major airports in Virginia. The Taxpayer operates as a common carrier and qualifies for the exemption from the sales and use tax provided under Code of Virginia § 58.1-609.3(6). The Taxpayer was audited and assessed tax in several areas. The Taxpayer protests the assessment relating to three issues.
The Taxpayer disputes the validity of the audit period based on the department's failure to timely execute the appropriate documents extending the limitations period for assessment of taxes. Further, the Taxpayer argues that the local tax assessed on in-flight liquor sales conflicts with federal law that prohibits a state's ability to tax service or property transactions on airline flights unless such flights take off or land in the state. Lastly, the Taxpayer requests waiver of the audit penalty. I will address the issues separately.
DETERMINATION
Statute of limitations
The Taxpayer raises two instances that question the validity of the statute period of the audit. First, according to the Taxpayer, the department's Form DT-36, which waives the time limitation on the assessment of additional taxes, was not signed by the department's official prior to the expiration date of the previous waiver form. Second, the Taxpayer asserts that the audit assessment was not issued in a timely manner as the Taxpayer received the assessment several days after the date of assessment. To support its argument, the Taxpayer points to the date of the signature of approval on the audit report.
Code of Virginia § 58.1-220 governs the extension of time limitations for the assessment of additional taxes and Code of Virginia § 58.1-1820 describes the method for providing notices of assessment to taxpayers. Consistent with the statutes and based upon the facts outlined in your letter, the assessment will be adjusted to remove the liability attributable to the periods April through November 1990.
Local tax and in-flight liquor sales
The Taxpayer protests the local tax on sales of mixed drinks to customers while the aircraft is in flight. According to the Taxpayer, liquor sales are not allowed until the aircraft is in level flight. At this point the aircraft is out of a local jurisdiction and in Virginia airspace. The Taxpayer argues that the local sales and use tax cannot be imposed because the situs of the sale is not in a local jurisdiction. To support its argument, the Taxpayer cites 49 U.S.C. § 40116(c) (formerly 49 U.S.C. § 1513(f)), which bars the imposition of state or local taxes on airline flights that do not take off or land in the state or political subdivision of the state. The Taxpayer also references a previous correspondence from the department in which the Tax Commissioner concluded that the federal statute may have been intended to apply to sales taxes and other transactional taxes.
49 U.S.C. § 40116(c) provides that "[a] State or political subdivision of a State may levy or collect a tax on or related to a flight of a commercial aircraft or an activity or service on the aircraft only if the aircraft takes off or lands in the State or political subdivision as part of the flight."
Code of Virginia §§ 58.1-605 and 58.1-606 allow cities and counties in Virginia to impose local sales and use taxes, added to the state sales and use taxes, and administered and collected by the Tax Commissioner, in the same manner, as the state sales and use taxes.
The federal statute allows states to tax the activities on airline flights when such flights physically touch down in the state or a political subdivision of the state. The imposition of the Virginia state and local sales and use taxes is consistent with the federal statute, in this case, because the Taxpayer is engaged in departure and landing activity throughout Virginia. Furthermore, the Taxpayer is engaged in other sales and use tax related activities at Virginia airports. As such, the Taxpayer is a dealer in Virginia under Code of Virginia § 58.1-612. As a dealer, the Taxpayer is required to collect the state and local sales and use tax on all sales in Virginia, including liquor sales occurring in Virginia airspace. The Tax Commissioner's interpretation of the law as applying to sales taxes and other transactional taxes supports this position.
The issue regarding the Taxpayer's inability to determine the situs of the sale in Virginia airspace for local sales and use tax purposes is addressed in Code of Virginia § 58.1-606(E). When an out-of-state dealer, who sells into Virginia, is unable to assign any shipment of tangible personal property to a particular city or county, the local use tax should be remitted to Virginia by the dealer without such assignment. Code of Virginia § 58.1-606(F) goes on to provide that unassignable tax revenue shall be distributed among all cities and counties in Virginia that impose the local use tax. Likewise, allocation of the local sales and use tax to all localities, on in-flight liquor sales by the Taxpayer in Virginia airspace, is reasonable.
Currently, the Taxpayer is required to pay a mixed beverage tax to the Virginia Alcohol Beverage Control Board based on the proportionate percentage of revenue passenger miles allocable to Virginia. The Virginia sales and use tax should be computed using the same formula. The department's***** District office will provide the Taxpayer with the proper forms for the remittance of the local sales and use tax that is unassignable and attributable to the in-flight liquor sales.
Penalty waiver
The Taxpayer disagrees with the department's method for computing audit compliance ratios for purposes of assessing penalty. The Taxpayer requests waiver of the audit penalty based on its compliance performance during the audit period.
Virginia Regulation (VR) 630-10-80 provides that penalty may not be applied to audit deficiencies occurring in areas not covered in prior audits. The in-flight liquor sales constitute a first time audit issue. As a result, I will waive the penalty attributable to those sales.
In this fifth generation audit, the Taxpayer was expected to meet or exceed a use tax compliance ratio of 75%. The use tax compliance ratio in this audit was 65%. After the auditor has made the necessary adjustments, the penalty will be waived if the purchases compliance ratio increases to 75%.
The auditor will adjust the audit and issue a revised bill. If you have questions
concerning the audit, please contact ****** at ******* . Should you have questions regarding the policy in this letter, please contact ****** at********.
.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8498J
Rulings of the Tax Commissioner